The Health of the Union, 2013

byRob CullenonFebruary 13, 2013

Some people (well, Marco Rubio anyways) are complaining that President Obama didn’t devote much time in his state of the union to talking about health care. In the transcript, it all falls neatly into one paragraph:

“On Medicare, I’m prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission. Already, the Affordable Care Act is helping to slow the growth of health care costs. The reforms I’m proposing go even further. We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors. We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive. And I am open to additional reforms from both parties, so long as they don’t violate the guarantee of a secure retirement. Our government shouldn’t make promises we cannot keep – but we must keep the promises we’ve already made.”

It may only be 156 words, but there’s a lot in there. As the Incidental Economist’s Austin Frakt put it, “All in all, this is not nothing. Obama said something on health care. He just said it very efficiently.” Here’s what it all meant.

“On Medicare, I’m prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission.”

Here Obama is referring to his deficit commission, which was tasked with developing a budget plan that would reduce the deficit $4 trillion by 2020. The Washington Post’s Sarah Kliff looked at how the commission’s healthcare cuts stack up next to President Obama’s last budget proposal:

The Simpson-Bowles commission came up with $480 billion health care cuts in its final proposal (these were across all health spending areas, not just Medicare). President Obama proposed $360 billion in health savings in [last year’s] budget, with the majority of those drawn from the Medicare program.

There are a bunch of ways President Obama could get to $480 billion in this year’s budget. As Kliff points out, the nonpartisan Kaiser Family foundation recently compiled a list (warning, it’s a big PDF) of 150 Medicare savings proposals that, if enacted all at once, would cut $9.4 trillion from the program.

“Already, the Affordable Care Act is helping to slow the growth of health care costs.”

It’s true, the growth of health care costs has slowed dramatically under President Obama, as The New York Times’ Anne Lowrey reports:

In figures released last week, the Congressional Budget Office said it had erased hundreds of billions of dollars in projected spending on Medicare and Medicaid. The budget office now projects that spending on those two programs in 2020 will be about $200 billion, or 15 percent, less than it projected three years ago. New data also show overall health care spending growth continuing at the lowest rate in decades for a fourth consecutive year.

What’s a little less clear is why health cost growth has slowed. It’s possible that the slowdown is just a temporary effect of the recession– Americans were spending less on everything, including health care.

However, there are reasons to think that the trend will last– Lowrey notes that health spending didn’t seem to decline or slow down more in states that were hit harder by the economic downturn, and it has flattened for Medicare patients, even though they tend to be sheltered from recessions. A growing number of health care experts believe that the slowdown is result of changes to the health care system, like the Affordable Care Act, where doctors and hospitals now have incentives to reduce costly mistakes and wasteful treatments.

“We’ll reduce taxpayer subsidies to prescription drug companies”

We explained this before, when Obama proposed it as part of the fiscal cliff negotiations, but in case you missed it…

[Big savings] would come from applying Medicaid’s drug discount to “dual eligibles”: people who are enrolled in both Medicare and Medicaid. Medicaid gets a huge discount of about 45% on prescription drugs, but Medicare gets no set discount– each Medicare Part D plan (and remember, these plans are run by private insurers) negotiates with drug manufacturers individually, for an average discount of only about 19%. Currently low income seniors who are eligible for both Medicare and Medicaid get their drug coverage through the more expensive Medicare Part D. Shifting their drug coverage to Medicaid saves a lot of money, particularly because dual-eligibles are some of the highest users of prescription drugs, spending over $6100 per person on medication annually.

“and ask more from the wealthiest seniors.”

Most seniors pay 25% of their premiums for Medicare Part B (this covers doctor visits), and 25.5% for Part D (which covers prescription drugs), and the government covers the rest. Under the Affordable Care Act, seniors with incomes over $85,000 pay a higher percentage of their premiums, and it goes up the richer they are:

President Obama has proposed raising the premiums for these wealthy seniors even more. This would, according to the CBO, cut $30 billion from the deficit over the next decade.

“We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive.”

It’s a little unclear what Obama is talking about here, mainly because the Affordable Care Act already contains a bunch of policies that change the way the government pays for care. The new law provides incentives for doctors and hospitals to form organizations where, instead of getting paid for every procedure, they’ll get one lump payment per Medicare patient or per episode of an illness. There are quality benchmarks, and if doctors and hospitals can provide high quality care for less money, they can pocket some of the savings.

Obama might be talking about expanding these programs, or rolling them out more quickly, but it’s hard to say for sure.

“And I am open to additional reforms from both parties, so long as they don’t violate the guarantee of a secure retirement. Our government shouldn’t make promises we cannot keep – but we must keep the promises we’ve already made.”

Again, this part is sort of vague, but we think it might refer to an idea floated by Republicans during the fiscal cliff negotiations: raising the Medicare age from 65 to 67. In the past, Obama said it’s something he might be open to, but on Monday, White House press secretary Jay Carney told reporters that Obama has ruled out raising the eligibility age.

This is good news. As we explained during the fiscal cliff negotiations, raising the Medicare age is a pretty bad idea for a bunch of reasons.